How to Take Your Financial Health Temperature by Analyzing Cash Flow

When a company starts to cycle into the slow part of its business rhythms, cash flow is often the first resource to show signs of strain. Often, the response to this strain defines whether the downturn will be short and part of the regular pattern of business or protracted and part of a larger trend. The difference tends to be on the impact of the responses on a company’s overhead. Slowing operations and restricting output tend to limit future incoming cash, so most companies attempt to find a way to raise working capital. Doing that often leads to the resources needed to reach new customers and begin the cycle of expansion again.

If you have noticed your cash flow tightening, you can check on your financial health by looking at how your cash has affected your credit balances, cash reserves, and investment choices. If you have been reducing incoming supplies or looking for less expensive alternatives, you probably need to find a way to raise working capital on demand, because those moves will impact both the volume and quality of your business output. If things have progressed to the point where you are considering turning down orders because of a lack of resources, it’s time to raise capital immediately to bring your company back to financial health.

Working capital is the lifeblood of business. It’s separate from your reserves, which function almost like loans to yourself since you will want to reinvest in replenishing them. It’s also not totally dependent on your income. The right credit resources will allow you to raise capital as needed, then pay it off with future profits. This can help with extending capital because those credit lines also tend to have interest-free grace periods you can take advantage of. Another way to raise capital is by taking advantage of your outstanding invoices.

Invoices tend to be a pinch point for cash flow, and many financially healthy and busy companies nonetheless run into cash management issues that can cause a business downturn if they lead to a reduction in incoming orders. You can’t buy supplies without money, though, so you will need a way to raise it. Luckily, there is factoring as an option. It’s a cash advance against outstanding invoices, so it is ideal for companies that have done a lot of business but haven’t gotten paid. That makes it a great tool for either avoiding a downturn or pulling out of one.

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